It’s time to mandate emergency cutbacks to oil production

Alberta must act decisively before even more jobs are lost, writes Jason Kenney.

Alberta is facing an economic emergency requiring immediate action.

We have struggled through four difficult years. Over 180,000 Albertans are still out of work. Unemployment has climbed for six straight months. We have seen near-record bankruptcies and insolvencies. People have lost their homes, and in too many cases, their hope.

But unless we act now, we could be on the verge of another major round of job losses. Many small- and medium-sized firms would quite likely cease to exist.

That’s because we are now virtually giving away an asset that belongs to all Albertans — our oil and gas.

The price we are getting for Albertans’ oil is at its lowest point in over 35 years. Yesterday, the market price for most of our oil — Western Canada Select — was US$12 per barrel — a fraction of the cost of bottled water.

This unprecedented price differential is costing our economy up to $100 million a day. It will cost the Alberta government over $7 billion a year, ballooning Alberta’s annual deficit from $8 billion to $15 billion.

Industry leaders tell me that they are burning through cash because the cost of producing and shipping our oil is higher than the price they get for it. That means cutting capital budgets and cancelling drilling over the winter, which would be a blow to service companies and their employees across Alberta.

If this giveaway of Alberta oil continues, we could face significant layoffs in an industry that is already reeling.

I have called on Alberta oil producers to voluntarily reduce production to deal with this crisis. Many have acted, cutting production by some 200,000 barrels per day. But a small number of companies are making big profits by shipping super-cheap Alberta oil to U.S. refineries, and are not willing to follow suit.

That is why I am calling on the Alberta government to curtail temporarily 10 per cent of Alberta’s oil production, with an exemption for small producers, and a sunset clause so such limits don’t become permanent.

Industry leaders are clear that doing so will not result in job losses, but continuing the current fire sale on Alberta oil will put thousands of jobs at risk.

Experts predict that this cut in production would result in an immediate increase in the price we get for Alberta oil, and within a few weeks would cut in half the huge glut of 35 million barrels sitting in storage, bringing our market back to balance and reducing the price differential from the current $40 per barrel to about $20 per barrel.

Additional pipeline and rail capacity is scheduled to come on stream next year, meaning that production limits will no longer be necessary by late 2019.

I am a free-market conservative, and I do not make this recommendation lightly. But after extensive consultation, I now believe this short-term action is necessary to prevent what one expert calls “a financial catastrophe.”

A short-term, limited government action is justified to prevent even more damage to jobs and our economy.

A small reduction in oil output is hardly without precedent. In fact, government rationing of oil production was a key part of the development of Alberta’s energy industry, from the Manning government following the Leduc oil discovery in 1947, through Peter Lougheed’s response to the national energy program in the 1980s.

Alberta’s oil and gas belongs to the people, not to the companies that extract it.

Government must not allow this public asset to be given away. Nor can we allow further massive damage to jobs and livelihoods in our province.

Short-term action to stop the current fire sale of Alberta oil is needed, but will not resolve the bigger strategic challenge we are facing of getting our energy to global markets. It is time that we moved from being defensive and apologetic about our role as responsible producers of energy.